Thieves obtain the information they need to commit identity theft by finding it in computerized public databases; looking through dumpsters for bank deposit slips; pre-approved credit card offers; or other discarded documents; stealing one's wallet or purse; stealing one's mil directly out of one's mailbox; or gaining access to sensitive information through their relationship with their employer and perhaps selling it out into the open market if they become abruptly discharged; or even bribing or smooth talking employees of companies who have access to customer or personal records.
Thieves also use camera phones to snap pictures of cardholders names, account numbers, and expiration dates. They can also obtain one's credit report directly from a credit bureau by posing as an employer, loan officer, or landlord. Information on one's credit report includes their social security number and a list of their credit cards and their numbers.
At the time of this filing there were 9.9 million Americans who fell victim to identity theft because someone illegally used their credit card numbers; applied for an account in their name; or otherwise misused their personal information. These cases cost banks, businesses and credit card companies $48 Billion in losses, and cost each consumer victim an average of $500.00. Stolen credit cards, which thieves use to make extravagant purchases, cost banks $1 Billion annually in and of themselves. Victims of the most serious cases of identity theft, those involving new accounts, spent an average of $1,180.00 and 60 hours trying to fix the problem. Overall, a victim spends on average 175 total hours over a two year period, to regain their financial health. It may take some victims up to four years to resolve.
Merchants also realize higher rates of chargebacks due to identity theft. A chargeback is a consumer dispute that, under certain circumstances, may be charged to a merchant. Many merchants' profit margins are very slim. Multiple chargebacks can result in a higher chargeback fee to merchants by acquirers, as well as increased insurance premiums, slower or halted accounts receivables, as well as overall increases in transaction costs along the value chain starting with acquiring banks and ultimately passed onto consumers. Multiple chargebacks can also force merchants to go out of business. That being the case, then the acquirer mist make good on the transaction despite the absence of the merchant, thereby generating a loss. These issues affect merchant brick-n-mortar as well as internet merchant businesses including auctions.
Current attempts to stave off, what the FBI has labeled as America's fastest growing crime—identity theft, have all but failed. Examples include smart cards, the $50.00 limit of liability, photos on credit cards, or even fingerprint technology.
The problem with smart cards is that it costs 5 to 10 times the cost to produce one smart card compared to a magnetic stripe card. There is also no logistical support in place to capture or store embedded biometric data. That is perhaps the biggest hurdle. The next largest concern is that there is no customer or merchant acceptance. This is evidenced in the trial market run back in 1988 on New York's upper west side. The card's acceptance failed miserably. Moreover, the smart card has been broken into. (See NY Times Jun. 10, 1998) But beyond all of the above, the underlying problem of identity theft still exists. That is to say, that once a thief puts their hands on a victims social security number, date of birth, full name, address, or telephone number then that will still allow them to steal a card holder's good name and use it for bad purposes despite the smart cards embedded biometric data. By opening a new account the data will simply reflect the thief's biometric data thereby legitimizing the fraudulent transaction.
The problem with the $50.00 limit of liability is that it works only for lost or stolen credit cards, and that presupposes a cardholder reacts within 48 hours. The billing cycle for credit card statements is usually 25-30 days. If a thief has a cardholder's card number then the victim will not typically react until they receive their bill. Then, once a cardholder does react they must complete a dispute form in writing within 30 days then forward it by mail or courier to their card issuer. The card issuer is mandated to respond within 10 business days for resolution of errors. The card issuer then credits the account and conducts an investigation that must be concluded within 45 days after receipt of the notice from the cardholder. If no error occurred, the issuer has 3 business days to explain its conclusion by delivery or mail. It is apparent that this reactionary product has a rather time consuming and paper driven expense, possibly as long as 181 days. Ultimately, the card issuer's shareholders absorb the loss. Moreover, the bigger problem still looms. A theft may still have the cardholder's social security number, address, date of birth, etc. and may still open up new accounts in the victims name even after the credit card is reported lost or stolen. Also it should be noted that this product does not extend to debit cards. A victim's savings or checking accounts could be wiped out if their debit account number is used fraudulently.
The problem with photos on credit cards is a simple one. Does the reader currently have a photo on their credit card? Debit card? Oil or department store card, or travel and entertainment card? The inventor's point is made. It should also be noted that there have been attempts to place photos on some cards, but they (a) are not ubiquitous, and more importantly (b) can easily be manipulated and re-laminated because they are card dependent security features.
The problem with fingerprint technology is that this technology was born out of the need to provide customer identification to cash checks in retail outlets outside of the check holder's area. The problem is that many privacy groups, like the ACLU, and others are in opposition to this practice. Some worry that the more intrusive fingerprint, is being used to intimidate people who patronize businesses that serve lower income people where check cashing is the only option instead of a bank account. There has also been evidence that someone was successful in placing a jelly like substance on their thumb to masquerade or fool the machine with a fingerprint other than their own.
Telephone fraud and utilities fraud cost the communication industries along with electric and gas companies over $4 Billion annually in the United States. These costs are ultimately passed onto consumers. The most common is subscription fraud. This type of fraud occurs when a subscriber signs up for a service with fraudulently obtained customer information or false identification without any intention of paying for service.
In summary all of the prior art fall short because they are (1) not ubiquitously found, and (2) are card dependent features that lend themselves to the potential for reverse engineering by sophisticated criminals, and (3) most importantly are reactionary and not preventive at the time of the transaction. A method of data processing for financial, business practices, management or cost/price determinations requiring authorization or authentication pursuant to 705/44 would solve the foregoing problems and disadvantages to financial institutions, merchants, and ultimately consumers while stabilizing financial credit markets.
The present invention addresses disadvantages and problems associated with previous products, systems, and methods to prevent identity theft.
Accordingly, the central objective of the present invention is prevention. Past attempts to solve the problem of identity theft are all reactionary products, systems, or methods.
The problem with zero liability policies is that it only applies to U.S. issued credit cards. It also only applies to one particular multi-use brand thereby leaving the other three main multi-use brand cards vulnerable. Furthermore, it is purely voluntary. It does not apply to commercial cards or to PIN transactions not processed by the products originator. Finally, and most importantly, if a thief has a victim's name, address, social security account number, or date of birth (DOB), that may be enough to continue to allow a thief to open up new lines of credit in other financial arenas.
The problem with the $50.00 limit of liability is that it too is reactionary. Moreover, it does not extend to debit accounts. It is highly labor and paper driven intensive. It also may drag out as bona as 181 days for a resolution. Finally, and most importantly, the main problem still exists. That is too say that if a thief has a victim's sensitive info, then new lines of credit may still be opened.
The problem with total protection is that it is a card dependent product. It is only available to the originator's check card customers. Thereby leaving other customers vulnerable. The vulnerability also extends to other card issuer's customers. Furthermore it does not protect debit account holders. Finally, the overall problem still looms regarding victim's sensitive information as previously noted.
The problem with photo ID's is that legally a merchant may not ask for a customer's ID as part of their regular card acceptance procedures, either when a valid card is first presented, or to complete a sale. This is outlined in all merchant agreement contracts with the provider. Laws in several states throughout the U.S. also make it illegal for merchant's to write a cardholder's sensitive information such as an address, or phone number, on a sales receipt.
The problem with credit card verification (CCV) is that once thieves gain access to a victim's card then they simply turn the card over on its back and reveal the CCV four digit code. This allows thieves to perform fraudulent purchases over the telephone. Much like other products, this one is also card dependent and therefore is inherently a failure.
All of the above products give consumers the illusion of protection against identity theft, but a macro look reveals that consumers lose in the end. Here is how: Despite the front end illusion, once identity theft transpires then card issuers are obligated to re-credit the consumer's account during the dispute phase. At that point merchants who once enjoyed a credit, now endures a debit in the merchant's reserve bank account until resolution. This is called a merchant chargeback. Many merchants have slim profit margins. Multiple chargebacks result in higher transactions fees set by the merchant's acquiring banks. If merchants go out of business due to increased transactions fees particularly stemming from a higher activity of chargebacks that all equate to slower accounts receivables, as well as an increase in lost inventory, then acquirers must absorb the loss. Acquirers pass those expenses onto other merchants and card issuers along the value chain for whom they perform transactions processes. Those expenses in the form of higher transactions fees are ultimately passed back to consumers in form of higher prices.
Other problems with existing products also adversely affect banker's blanket insurance premiums, credit risk models, bank reserve requirements to cover loans associated with extending credit, as well as shareholder value for all entities along the value chain.
On a final managerial note it should be appreciated that businesses including card issuers, all experience quality costs at different stages. The four stages become more costly as a business fails to implement a strategy to reduce or eliminate these costs.
The first stage is the prevention cost or research and development stage. At this stage training of personal, evaluation of potential suppliers, improving materials, as well as improving equipment and processes are found at this stage. The disclosure embodied in this filing is comprised at this stage.
The second stage is the appraisal cost or detection of poor quality services stage. At this stage inspection of incoming credit applications, inspections of various stages of credit approval, inspection of the initial cardholders, and also product testing that might include clerks at the POS.
The third stage is the internal failure costs or production stage. Production loss is caused by downtime as in the case of a filed dispute. Reworks, scraped, rejected product units, as well as disposal of rejected units all make up this stage and add to an increase in costs relative to the two foregoing stages.
The fourth and final stage is the costliest. External failure or customer service or opportunity costs stage is found here. This final stage is where all the reactionary products previously discussed are located. Loss profits from lost customers, warranty or guarantee costs, service costs at customer sites, as in the case of initiating an investigation at a merchant's site once a dispute is filed, sales return and allowances due to fraudulent transactions, and also product liabilities, are all characteristics found in the last stage.